In the first part of this article, I addressed steps to obtain capital for growth: optimizing cash flow from operations and presenting a high quality documentation package that portrays your financial history and strengths. With these as a foundation, consider several additional steps.
3. Put together a professional package that explains why you need cash to grow
Your package should explain why you need the money and how you will pay it back. There are different financing structures for different financing needs. Are you financing new long term plant and equipment? Or seasonal swings ? Or a big growth initiative? Does the financing you are asking for address your needs for the next two years? Can you show the bank how you will pay it back? Have you prepared the supporting documentation the bank will need?
4. Find the Right Lender
Many executives think the biggest national banks have lots of money to lend and would be a great source of funds. Unless your company has complicated international financing needs, most entrepreneurial companies are better off with smaller banks who will know them personally and value their business. Choose a bank that wants your business and the business of your employees. Today, even smaller regional and local banks participate in SBA programs that can be an important source of funds. If your equity base is low, there are also many Asset Based Lenders who will provide loans based on the value of your equipment, inventory or receivables, while you build up your equity base through earnings. Choose a lender that fits your needs and financial situation.
5. Be Creative – Look at all Funding Sources
While raising equity is an option, equity investors demand high returns. Many companies will be better off addressing capital needs with other creative financing sources. Look at your assets to determine where else you can raise cash. Stockholders can lend money to the company financed by home loans. Some companies have “hidden assets” such as hardwood that can be harvested from timberland, or cell phone tower rentals that can be sold for cash. In today’s low interest rate environment, many business owners find friends and family are very interested in making loans that pay more than an individual can earn in the financial markets but are less expensive than a company might pay for Asset Backed Financing.
There are many ways to address the “Capital Gap” that growing entrepreneurial companies face. Researching all your options; thinking creatively and giving potential funders high quality documentation are among the key steps to getting across the Capital Gap to your company’s next level of growth.
For more information on how to grow your emerging middle market company, download our ebook "5 Steps to Survive No Man's Land" which details the 5 executive habits you should be addressing.
Catherine Cates has a diverse background as an executive, advisor and entrepreneur. She has developed strategies for middle market companies, worked with Newport's private equity firms and has significant experience as an entrepreneur. You can learn more about Catherine or contact her here.
